Ways to Create an Emergency Fund for Your Business

Business owners and entrepreneurs often overlook the importance of having an emergency fund, that is until they find themselves at a time when an emergency fund would come in handy. This economic safety net can protect you from unexpected costs, such as personal hospital bills, supplier/vendor fees, penalties, and so on.

But as you learn soon enough, setting aside money for an emergency fund can be tricky, especially for businesses that are barely breaking even from their monthly expenses. Fortunately, it’s not entirely impossible. Here’s five ways to do just that:

Cut Costs

To save more money, you need to first lower costs. While it’s an admirable goal to try and save $100 every week for your business, you’ll often end up using the money to pay for recurring and/or unexpected costs. Before your emergency fund can start growing, you’ll want to trim the fat first, whether it’s funding a department that doesn’t deliver any output for your organization or overpaying for supplies and raw materials. Another common cost-cutting technique for businesses is sharing marketing expenses with other businesses in your locale.

Save More During Lucrative Times

A fixed amount of savings allows you to measure and anticipate how much money you’ll need to allocate to your emergency funds, but you may want to save more during high-earning times.

It can be tempting to spend the extra cash you have at hand during these months, and setting them aside immediately into an emergency fund removes the temptation until you can figure out where best to put it in. Simplify the process by using an automated savings plan that takes cash from your business’ bank account before you can use the money.

Consider Your Options

Businesses that are planning to create emergency funds have various options available to them. A common mistake that most entrepreneurs do is put all their net earnings in stock. While a stock portfolio can pay, both from the initial asset price and any dividend yields, business owners may encounter difficulties when accessing their funds, particularly if the market drops sharply.

To be safe, business owners should opt for safe savings and investment vehicles that can be easily liquidated when needed. Low-risk bonds, for example, are a popular choice for low-risk investment portfolios.

Establish What Your Fund Will Cover

How you spend your emergency fund is as important as how you created it in the first place. When it comes to burning through your business’ emergency fund, make sure that it is an actual emergency situation that merits financial support otherwise you should look at other options, such as trust deeds and car title loans in Orlando, for temporarily satisfying your business’ financial obligations.

Know where you’ll need to use it in the future. Is it for manufacturing or production issues? Perhaps for marketing or advertising to a new niche of customers?

Be Creative and Resourceful

These two qualities both make a huge difference between an entrepreneur’s success and failure. The best places to start looking for more money for your emergency funds is through your day-to-day expenses. Jot down notes and write down everything you are paying for.

Final Thoughts

Creating an emergency fund is simple and straightforward; what is challenging is starting. Use this article as your starting point to protect your business from unplanned for expenditures.